Winding Up Petition ~ lessons to be learnt for company directors

The recent winding up by the Insolvency Service of Jacob H Ltd (JHL) on 14th May 2014 provides a few lessons for directors; apart from the obvious one of making sure that you provide services that you are taking payment for. The company traded in London, but offered large goods vehicle (LGV) driving services across the UK and did not actually provide the services in the majority of cases. You can read about the actual Insolvency Service case by clicking here.

The Insolvency Service investigations supervisor David Hill said: “This company appeared to have no intention of providing the services it claimed it could and instead duped customers into paying for service they were never likely to receive and winding it up protects the public from losing more money in this way. “The winding up should serve as a warning that the Insolvency Service will take action to remove rogue companies from the business environment.”

The company failed to file accounts but it is known that £130,000 was taken in deposits and even where refunds were agreed they were never paid. The average customer paid £920 deposit to book their lessons so the number of customers involved and eventually defrauded were quite substantial. It is not clear if criminal charges may follow but the directors Hussain Ahmed and Mohammed Khaled will now be interviewed by the Official Receiver and a full investigation of the directors actions will now follow. The directors can receive disqualifications from 2-15 years, fines and even a jail sentence for the most serious offences. The Insolvency Service was alerted by Islington Trading Standards who had received 40 complaints of services not being provided despite being paid for.

What the Insolvency Service does

The Insolvency Service is a government body and is responsible for all compulsory liquidations (winding up) in the UK via the official receiver. One of the key tasks of the official receiver on behalf of the Insolvency Service is to identify why the company ended in an insolvent liquidation and became insolvent in the first instance. It has a lot of other wide ranging powers from paying redundancy to insolvent company employees to investigating live companies that warrant their attention. You can learn more about the Insolvency Service here http://www.bis.gov.uk/insolvency.

Failing to file annual returns

Directors should be aware that failing to file accounts with Companies House is a criminal offence so can leave a naïve director with a criminal record and there is no point in blaming the accountant even if it is their fault. Whilst there is no law stating Directors must have qualification as a director you have the responsibility for filing the accounts and you will be expected to demonstrate ‘sufficient levels of skill and knowledge’ to manage the company affairs.

Directors have a legal obligation under the Companies Act 2006 to file annual returns and failure to do so on time will result in escalating fines, dependent on the delays and end in possible personal prosecution of the director and directors' disqualification. It is also worth noting that as a director you also responsible for acting responsibly and complying with other laws too such as

• Employment Law
• Health & safety Law
• Insurance law
• Tax law
• Insolvency law

Failure to comply with these laws can have severe implications for directors and this can range from disqualification from acting as a director to going to jail so if you are in any doubt you should seek relevant professional advice.

Abandoning the company

Simply resigning as a director will not negate any liabilities or responsibilities you may have incurred whilst acting as a director. In any event leaving a company without a director is also a breach of the Companies Act and may lead to the directors being disqualified and investigated as if they had been “liquidated”. The investigation can be instigated by the director of corporate enforcement so abandoning your company should not be considered an option. By abandoning the company you are openly demonstrating disregard or ignorance of the law and either one will not be received well by the Insolvency Service.

Wrongful trading   

The directors have continued to trade and subsequently increased the debts to the company and therefore are likely to be charged with wrongful trading. Wrongful trading is better thought of as irresponsible trading and this would be accurate on the face of it in these circumstances. If proven, wrongful trading can mean the directors being made personally liable for the debts accrued in the time period when the directors knew, or should reasonably have known, the company would end in an insolvent liquidation.

There is also the point of the deposits themselves and clearly they should have been kept separate from the company funds so that customers wanting a refund could have been made easy. By ring-fencing the deposits they also protect customers money from being absorbed into the company account for paying bills and being misused. For example if the customers were told that they can have their money refunded if they were not satisfied then the ‘not isolating’ the potential customer refunds only adds more evidence of misuse of customer deposits. This situation can be made worse if those monies were then used for the director’s personal use. So the simple answer is keep personal and business funds separate, but also keep deposits separate too, possibly in a customer trust account or something similar – ask your bank for more information.

Offering services you do not provide

There may be charges against the directors from Islington Trading Standards for not providing services as advertised.

Generally a company; when advertising goods must:

• Match the description
• Be of satisfactory quality
• Be fit for purpose   

Clearly in this case none of the above applied, so there may be a prosecution to follow on this matter, also.

To find out more information about a specific insolvency solution; get business debt advice, or to simply learn a little more about insolvency, in general, please visit our website by clicking here.

Banks; Friend, or Foe to SME's?

Having read over the weekend of yet another breaking banking scandal is it not about time these disgraceful fat-cats were seriously taken to task? As a company turnaround consultant I come into contact with the shameful banking practices on a frequent basis. This latest ‘revelation’ headlining the newspapers is not news to those of us in the insolvency business as there have been suspicions for years around the insolvency practices and banks. A lot has to do with the banking culture itself which has become more and more arrogant and remote from its original purpose – to lend and provide services to its customers.

Successive governments have had far too close a relationship with the banking heads. The most notoriously bad banking and political relationship was of course between Fred Goodwin, ex RBS boss and Gordon Brown, who has arguably been deemed "the worst chancellor ever".

Gordon Brown appointed Goodwin of all people to advise on the regulatory aspects of banking and sale practices and duly gave good old Fred a knighthood in gratitude. The appointment of Goodwin advising Gordon on banking regulation was not so much the blind leading the blind, as the equivalent of King Herod being asked to advise Mothercare on the latest range of comforters. It should not, therefore, come as any surprise that on top of the rate swap mis-selling debacle we now have this latest, equally shameful list of accusations against RBS of stealing property at an undervalue.

We come into contact with situations like this through our line of work and one example could be a recent case where a director was sold ‘insurance’ to cover his company against rising interest rates until, you guessed it, the interest rates fell and his cash-flow was destroyed. This was an interest rate swap product and even though he complained, he got nowhere with the bank and eventually the company went into default with his mortgage payments – the actual mortgage he had ‘insured’ and trying to protect.

The director had secured a RICS valuation for over £2m and yet, just one year later when the company, now starved of cash due to the horrendous interest rate payments he was paying to the bank, was forced into company liquidation. The bank appointed liquidators then sold the property off at a value of £800,000 knowing that my client had personal guarantees in place further protecting the bank. He not only lost his business but also his wife, having long suffered the pressures of supporting a stressed husband, she had finally had enough. He also lost his children and immediate access to those that made his life worthwhile. All this because greedy individuals looked after their own interests first and believed they had the right to do what they could with no thought that they may be doing wrong. But these ‘scams’ do not only involve bankers, they drag in the associated large insolvency practitioners who sit on the banking ‘panels’ as they may have too cosy a relationship with the banks. This may be another area for investigation by Vince Cable who appears to me to be one of the few politicians with any sense of integrity. 

Of course the newspapers rightly focus on the lost businesses and the hardship that this causes, but what it also does is knock our confidence in the established banks and the establishment itself to an extent. It is hardly surprising why banks are so despised; try getting a commercial loan, or worse a mortgage and the banks get tighten-up. Any mortgage applicant is treated like a criminal as they have the audacity to dare borrow money to improve their lot. 

Of course this would be funny if there wasn’t a more serious side to it and the serious side is the human fall-out of the pressure that these scandalous banking practices bring about. The fact that the Co Op Bank, set up to serve its members has been brought to its knees with £1.5billion gap means pensions will be underfunded and genuine investors will lose money. 

The banks have a lot to answer for and there does not seem to be any end to these banking scandals that have hit every man woman and child in this country and arguably the western world. The bigger question is what do we do to put this right? 

Written by: Mike Smith

Do insolvency practitioners do turnaround?

I read a very interesting article recently highlighting this question and it may seem an odd question to ask, but do insolvency practitioners actually rescue companies, or simply put them into liquidation? Put plainly, do insolvency practitioners rescue companies? The question was posed by a well-respected rescue CEO and consultant with over twenty years in rescuing businesses. My experience is, I have to say, not good when answering this question. I have been advising large medium and small companies for over thirty four years now and rescuing a failing business is not for the faint hearted, that’s for sure. So why is the question even being asked? Well I suspect this well respected gentleman has had similar experiences to me over the last five years or so, through the heat of a recession.

Unfortunately, I do believe insolvency practitioners generally have lost the appetite and more importantly lost valuable experience in rescuing companies and have put more focus on more expedient liquidations. In the last year alone we have been contacted by around 2-3,000 company directors seeking business debt advice. The majority of directors that we have advised who had also spoken previously to competing insolvency practitioners were genuinely surprised and greatly relieved when we discussed how we may be able to rescue the company and not simply put it into company liquidation. Now, it is not possible to rescue all companies and I accept there are a lot of so called zombie companies out there, but shouldn’t we at least work from the premise of ‘how do we save this company’ rather than how quickly can we close it?   

Certainly the majority of insolvency practitioners appear driven more by regulatory and compliance matters than saving the company. I guess this is understandable when they are subject to spot checks and can lose their licence if not completing procedures thoroughly enough, but is this the real reason or a symptom of something else?

    

Over the last five years or so, since the recession, we have seen and heard of serious investment in compliance policies and procedures which has turned into an entrenched dogma creating a completely different type of insolvency practitioner to that which existed 7-10 years ago I suspect. There is something else though when you look at the increased numbers of staff. The new kids on the block don’t know anything else other than compliance, regulations and following the necessary processes and many have no first-hand experience of rescuing a company, or negotiating with creditors over business debts.

With the economy improving and the Insolvency Service cutting down in size, it may be that a downturn in insolvent liquidation cases may well be followed by a number of insolvency practitioners starting to struggle and being taken over. It may seem improbable, but there is already evidence in the market place that insolvency practitioners are trying to change their approach as they begin to struggle. The insolvency practitioners that cannot adapt to the changes will struggle to survive in a market where desperate practitioners are already pushing liquidation fees down in an attempt to reel in more business whilst their profit margins get squeezed. A note of caution here; far too many directors do not think to check the website of insolvency practitioners for genuine testimonials, or ask to speak with the insolvency practitioners' past clients. This should always be the first action that any company director should take who is thinking of engaging, or referring an insolvency practitioner.

The 'big boys' appear to have swallowed up a significant portion of the ‘company rescue’ talent, but not every SME can afford their fees and in any event, these bigger firms of insolvency practitioners will continue to ‘cherry pick’ their clients based on certain prerequisites. The average SME traditionally turns to his/her accountant for help and that is as it should be as the first port of call. Perhaps the SME accountants should check who they refer their clients through to in future more than they previously have when they want a company to be rescued?   

Back to the question: Do I think insolvency practitioners do turnaround? Well, the larger clients will probably be able to afford the big names, but the smaller companies are left to a roll of the dice as to whether someone will genuinely try and turn the business around, or simply put it into company liquidation.

 

There is a simple solution though – check the websites and how about asking to speak to past clients? 

Who takes care of who when a business is insolvent?

When a company becomes insolvent the directors must take great care to fully address their duties and responsibilities; even more so than usual, as they will be watched very closely if they require an insolvency practitioner step in and process an insolvency solution for them.

Why is this? Simply put, as soon as an insolvency practitioner is engaged as a liquidator their main duty is to the creditors not the directors so your personal interests are not looked after by the liquidator once they have been engaged. For example increasing the overdraft within the normal day to day running of the business  would not be an issue, but what happens if matters start to go wrong? You may require personal help during the liquidation process and often afterwards. So who do you turn to if you can't go to the liquidator, surely they are there to advise you? Normally, you would need to engage an external consultant to advise you personally while the liquidator does his/her job. This is not the case with Jameson Smith & Co.

t Jameson Smith & Co we work very closely with you throughout the liquidation process and afterwards if required to help make sure that everything on your side runs smoothly and that you are protected personally as much as is possible. So the liquidator has a duty to the creditors (people your business owes money to) whilst having due care for the  directors and Jameson Smith & Co has a duty to the directors with due-care to the creditors. Who would you rather have on your side? This is not meant as a slight on the liquidator quite the contrary they have a job to do and we find that this brings a far more equitable solution and everyone is tended to and taken care of.

Frankfurt-Based Super Club to Enter Administration

The Cocoon Club in Frankfurt Germany is to enter administration after a recent announcement that the club is having difficulties.

DJ Sven Vath thought of the idea and the club was launched back in 2004 with the intention of brining the clubbing fraternity back to Germany. The well renowned DJ remained a partner in the club.

The company is hoping to preserve the club and rescue it from insolvency via a purchase by any potential buyer in the near future.

New Personal Insolvency Law Introduced in Ireland

There has been a new Irish Insolvency Bill installed as recent as the end of June 2012. This new radical legislation is designed to overhaul Irish law on personal insolvency and Bankruptcy.

One major point that has been addressed is the length of a bankruptcy period from 12 years to just 3. Estimates show that around 21,000 people in Ireland could benefit from the new legislation in the coming year.

This insolvency bill comes as a relief for many people in Ireland who are struggling with personal insolvency problems.

Trinity Mirror Hires Ex HMV Boss

Simon Fox, the ex CEO of HMV has been hired as the new boss of media group Trinity Mirror.

Trinity Mirror have confirmed the new appointment very recently after speculation on the news caused discussions over whether it was going ahead.

There has been some concerns voiced through social media forums from shareholders about the new appointment of Mr Fox, given that his two previous appointments have been over some very reputable company's that have now been left in less than optimal financial position.

The last company Mr Fox was CEO of, HMV, saw a 98% drop in share price over the period that he was employed at the company which is almost certainly why there has been so much concern from shareholders of Trinity Mirror over his new appointment there.

Insolvency is a challenging period for any sized business and making the right decisions when it counts is not an easy task for the average person. Getting the correct guidance throughout the more challenging periods is essential for the success of your plan so if your company is struggling with cash-flow problems please get in touch with us sooner rather than later to find out your options at no cost.

Call us on 08000 746 757.

Limited Company or Sole Trader?

Quite often we get calls throughout a week and a common question is "Am I protected?". What is the main difference to you as a person in business between a limited company and a being a sole trader? The simple answer is protection. When heading for insolvency a sole trader has the distinct disadvantage that their person debts and the business debts are one in the same thing. This is not always the case if you are running a limited company.

A benefit of having a limited company to a director is the protection that the limited liability status provides. If all of the company debts are unsecured and there are no personal guarantee signed on any of the agreements with creditors then you are far better protected that if you were a sole trader.

Clearly this does not mean that you can neglect your company's creditors, but what it does mean is that you can manage the situation with more personal security and less stress.

This seems to be a common misunderstandings when speaking with business people in the UK when discussing insolvency and the risks involved.

Africa Olympic Village Closes

The Africa Olympic Village has shut down due to debts that were unable to be paid.

The village was shut down on Wednesday the 8th of August because of the mounting debts that were owed to creditors.

A representative said that the downfall was mainly due to logisitcal issues.

The site played part in hosting music and dance events and is situated in Kensington Gardens in West London.

This information comes as a shock and upset to most that were involved with the village and it seems a shame for the business to hit insolvency so soon during the Olympics.

Portsmouth to be sold?

Looks like Portsmouth football club is to be sold off after a deal has been struck by administrators to off-load all of the senior players.

The previous FA Cup winners have been insolvent for some time now and they have been considered many insolvency solutions such as a company voluntary arrangement and voluntary liquidation.

The sale of the club will take place next week, days before the new season starts.

This shows the level of business that can struggle with insolvency, it's not exclusive to small UK limited companies. Businesses of all sizes can come into difficult times. The insolvency solutions are often the same to consider and it all depends on the company's situation as to which one they choose to help them towards their goal.

www.companydebt.com

HMV announce more losses

HMV have recently announced that they have more losses totalling at around £16.2 million and have also taken out a loan to help support the business in the near future.

The retail music firm has had around a 12% drop in profits compared to last year and the loan they have recently taken out is £4.4 million to try and aid the business' future.

The struggling limited company is trying to trade through the difficult period with a venture into selling hardware products and although a spokesperson has said that sales of the hardware products are on the rise, so far the plan doesn't appear to be doing enough.

I for one would like to see HMV stay on the high street as I believe it is a valuable asset to the UK's retail sector and provides a good selection of attractive products.

Retail has been hit hard as we all know and there are many businesses on the high street facing similar situations but with the added challenge of not being able to borrow money for whatever reason. When a limited company is struggling and is approaching insolvency there are a few solutions that can be selected to help the business to either trade on or close down with the potential for the same director to start afresh with a new company.

Simply closing down with debts to consider may be a situation for voluntary liquidation such as a creditors' voluntary liquidation. Alternatively, if you want to keep on trading with the same legal entity you may want to consider a company voluntary arrangement. More about these solutions can be found at www.companydebt.com.

Could there be trouble for Thomas Cook?

The travel company, Thomas Cook have been struggling for some time. The tour operator firm has just confirmed greater losses in Q2 than they had hoped and is a stark comparison against the profits in 2011.

The total losses for Q2 are said to be £26.5 million. If we compare this against the profits of the same period in 2011 which was around £20.1 million the travel company clearly has cause for concern.

Comparing the same period within a 2 year time frame displays a volatile trend so anything could happen.

They were hoping for sales form their Olympics packages to support them throughout this period, however, sales have been disappointing low.

Many companies are having insolvency difficulties and cash-flow problems at the moment in the UK and deciding which solution to take such as a company voluntary arrangement or biting the bullet and going through a voluntary liquidation can be hard. What sort of solution will Thomas Cook reach for?

A common word mentioned several times when representatives from Thomas Cook have been questioned is 'challenging'.

Let's hope that the travel firm is up to the challenge and comes out stronger on the other side.

Retail Sector Insolvencies on the Rise

The number of retail sector failures has risen by more than a third recently.

Around 670 retailers went bust during the first quarter of 201 which is a 38% rise against the 486 that became insolvent during the last quarter of 2011.

This is a 3% increase on the number if businesses that failed during the same period last year, confirming that this year is in fact worse for insolvency figures.

The retail sector has been struggling to get back on its feet since the first recession that began in 2008. Since this period the UK has slipped back into a double-dip-recession and has forced many business to consider voluntary insolvency solutions such as liquidation or company voluntary arrangements.

Many are blaming the double-dip-recession for pulling the retail sector back down into insolvency.

Jameson Smith & Co help UK directors to get out of tricky insolvency situations. We speak with directors every day so get in touch if you need help with your company.

You can get in touch on 08000 746 757 or use our live chat facility at the top of the page.

Insolvency & Rescue Awards 2012

This years Insolvency & Rescue Awards are coming to us this October!

Last year many insolvency practitioners turned up hoping to be selected and walk away with an award in-hand. Some great insolvency practitioners won some great awards.

The Insolvency & Rescue Awards celebrates the achievements of firms and individuals in a challenging sector.

To read more about the Insolvency & Rescue Awards 2012 visit the website at www.insolvencyandrescueawards.co.uk

No Buyer as Yet for Clinton Cards...

Over 40 Clinton Cards stores have closed down by the administrators this month. The 43 stores that were closed were part of the 330 store that were not included in the deal confirmed on the 7th June.

Among the stores that have closed are the sites that include Basildon Town Square, the Galleries shopping centre in Bristol, the Glades shopping centre in Bromley, the Liberty II shopping centre in Romford and Wrexham's Regent Street branch.

A representative at the insolvency practitioners that have been appointed as administrators feels that there is a strong underlying business within Clinton Cards despite the current economic conditions.

Small Business Owners Risk Personal Insolvency

Small business owners tend to risk Personal Insolvency as a consequence of business failure.

Many owners of small companies invest their own money in their business, borrow in their own name (rather than the name of the business) in order to fund the Company or take out a second mortgage.  Draw on personal credit cards to help support the business.

It is important to obtain appropriate advice. There are many routes to structure the Company debts by way of formal insolvency for the Company such as Liquidation, Administration, Company Voluntary Arrangement. At the same time personal indebtedness can be structured by way of Bankruptcy, Individual Voluntary Arrangement.

Jacobs Cameras Closing Some Stores to Become More Attractive to Potential Buyers

PFF Accountants are managing the administration of Cecil Jacobs and they have confirmed that they are to close several stores in some key areas to help make the business more attractive to potential buyers. some of the areas in which the stores are closing are Birmingham, London, Derby, Hull, Kingston-Upon-Thames, Liverpool and Sheffield.

Around 46 staff are unfortunately heading for redundancy due to the insolvency proceedings, however, this is considered necessary according to the insolvency practitioners if the business is to be sold.

A representative at the insolvency practitioners firm said "These measures are painful for everyone involved, but they are essential if we are to have a reasonable prospect of finding a buyer for the business as a going concern - although we recognise that there are likely to be more challenges ahead".

The camera company has already had a number of potential acquirers who have expressed their interest and are now in a position to start negotiating. It looks likely that Cecil Jacobs is set to avoid liquidation if it can help it.

Seaside Suffering

Five out of the 10 local authorities with the highest total individual insolvency rates in 2011 are seaside towns, with Blackpool having an individual insolvency rate of 57.7 per 10,000 adults, approximately double the England and Wales rate.

Other seaside towns that are also having problems include Wansback, Penwith, Torbay and Scarborough. Three of these towns also have an above average percentage of companies at risk of failure.

Penwith, Torbay and Scarborough all have a higher percentage of companies at risk of failure in the next 12 months compared to the national average (21.6%). In Penwith, 24.4% of companies are at risk of failure; this figure rises to 25.2% in Wansbeck and 25.7% in Torbay. Both Blackpool (21.8%) and Scarborough (20.7%) are closer to the national figure.

Although “Staycations” are becoming more popular compared to overseas package holidays, many families can either no longer afford these or are cutting down on spending while away which is significantly impacting seaside resorts.

Lee Manning, R3 President, comments “Many of these areas are still very much reliant on the holiday trade, and are therefore under enormous pressure. Without the boost that tourism gives to local economies, many small local businesses are struggling to stay afloat and this will have an inevitable impact on the finances of those who own, supply to and are employed locally by these businesses.

“We appreciate that individuals are also feeling the pinch, with wages stagnant and the cost of living increasing, but the important thing is to seek help early. We would urge any business or individual who is struggling to make ends meet to seek advice from a regulated professional.”

Teesdale has largest increase of personal insolvency

Statistics show that Teesdale had the largest year-on-year increase of individual insolvency this year.

According to the Insolvency Service their research indicated that the reason behind the increase in both forced and voluntary insolvency was due to the knock-on effects of the recession. Even the Citizens advice bureau noted an increase of personal insolvency enquiries coming from the Teesdale area.

The types of insolvency cases have ranged from bankruptcies, debt relief orders and individual voluntary arrangements have all risen over the recent years for the Teesdale area.

According to the Citizens Advice Bureau they expect a further 65% increase on top of the current figures if the trend carries on.

So how can we avoid insolvency? For some the answer may be that it is inevitable, however, with careful forward planning through the use of a personal cash-flow to work out your outgoings and what you have coming in you can put the odds in your favour.

If insolvency is inevitable and it is too late to consider other options then you will want to make sure that you choose a firm that can represent you well and provide you with expert advice to help you get out of the situation as soon as you can. The Citizens Advice Bureau is a fantastic place to start as they provide free advice like ourselves. Although we focus on helping directors and business insolvency, we can always help point you in the right direction and we won't charge you for the time.

Head of Ex-DEFRA takes on CEO role within the Insolvency Service

The Insolvency Service has now recruited the former DEFRA divisional chief executive as its new their new CEO.

Richard Judge succeeds Stephen Speed who has been CEO of the Insolvency Service for more than four years. Mr Speed is now going to become the director of the Energy Development unit at the Department of Energy and Climate Change.

Richard Judge has been the CEO of an agency within the DEFRA (Department for Environmental Food and Rural Affairs) since 2007, prior to that he has worked in the nuclear, rail and environmental sectors in the UK, having no previous experience in the insolvency sector. Judge is set to start at the Insolvency Service around the end of July.